Martin Flanagan: Growth and gloom, stop and start, zig and zag

That was “zig”. But then an accumulation of more positive data since the turn of the year began to make that pessimism look possibly overcooked.

Instead, for a while it looked like for the first half of 2011 it could be a rather better outlook of either stagnation, at worst, or mild growth. That was “zag”.

But the Governor has stopped any optimism getting out of hand. The Bank’s quarterly inflation report is accompanied by King’s renewed warning that the economy still faces “substantial headwinds”. From eurozone meltdown to fresh oil shocks, we are not out of the woods.

King says quarterly growth could dart about this year, giving contradictory signals, citing as an example the extra day’s public holiday due to the Queen’s Jubilee celebrations and its effect on economic output. We had exactly that negative impact with the extra’s day’s holiday celebration for the Royal wedding last year.

In a further zig-zag to expectations, after the Bank pumped another £50 billion into the economy last week quite a few economists thought that another slug of so-called quantitative easing (QE) might be on the way to address lingering fears about a return to recession.

But yesterday the central bank raised its medium-term forecast for currently falling inflation to 1.8 per cent, disturbingly close to its two-year 2 per cent target.

Critics say QE stokes inflation and is destroying the value of savings that have already been decimated by historically low interest rates. So you have to wonder now whether another dose of QE is as on the cards as it was even just a week ago?

It is still more likely than not that inflation will continue to fall this year, already down to 3.6 per cent in January from 5.2 per cent last September.

Power prices are down and last year’s January VAT rise is now no longer part of the calculations of inflation. The likelihood is that pressure on household spending will ease.

But the $64,000 question is whether consumers will spend that extra bit of cash they may have and provide some impetus to a UK recovery. Or whether they will continue to stick it in the bank or pay off credit cards. They may plump for caution as any new worrying economic data emerges, not least the depressing latest rise in unemployment yesterday.

As King says, the economy itself and expectations in these circumstances could easily lead to a zig-zag year of growth and gloom, stop and start. Probably the only fact that we can predict with any certainty is that interest rates will stay at present low levels.

King was as plain as a pikestaff yesterday that he believed the BoE would have plunged Britain back into recession if it had hiked interest rates to combat rising inflation over the past two years. He is right. The short-term boost to savings rates would have been swamped by the dismal effect on the wider economy. The savers will have to bear it.

Value for money is a key to good results

WHEN the going gets tough, a diverse array of operators get going. Domino’s Pizza is the latest to deliver impressive results, with it looking between the lines that a lot of the younger generation are combating the gloom of the downturn by ordering pizzas on their smartphones. The company’s internet pizza orders rose 43 per cent last year, now accounting for 44 per cent of total orders.

Ditto serial outperformance by bakery group Greggs, now virtually on every high street. Cut-price supermarkets such as Aldi and Lidl have also come into their own as customers count the pennies in these difficult times, while cheap fashion group Primark goes from strength to strength in the downturn. Pawnbrokers like Albemarle & Bond, which also specialises in short-term loans, have also unsurprisingly seen a surge in business.

To be fair, the likes of Domino’s, Greggs and Primark also did well when times were better, showing they are not just a play on resilience to recession. Still, it clearly does not hurt to have direct, value-driven offerings when customers are under the financial cosh.